Question

In: Accounting

Shown below is activity for one of the products of Weasel: January 1 balance, 220 units...

Shown below is activity for one of the products of Weasel:

January 1 balance, 220 units at $50 for a total of $11,000

Purchases: January 10-200 units at $42

                     January 20-500 units at $55

Sales: January 12-350 units

             January 28-425 units

1. Compute the ending inventory and cost of goods sold assuming Weasel uses LIFO and a periodic inventory system.

2. Compute the ending inventory and costs of goods sold assuming Weasel uses average cost and periodic inventory system.

Please Show all Work

Solutions

Expert Solution

Under LIFO and Periodic Inventory system

Cost of Ending Inventory

Since the Weasel is using LIFO periodic system, the 145 units in ending inventory would be costed using the earliest purchasing costs. The computations are given below:

Earliest Cost: January 1(Beginning Inventory):

145 units@50    $7,250

Total cost of 145 units (Ending Inventory) $7,250

Cost of goods sold

The cost of goods sold is equal to the cost of units sold during the year.

Cost of goods sold = [Cost of units in beginning inventory + Cost of units purchased during the period] – Cost of units in ending inventory

Cost of units on Jan 1, (Beginning Inventory):

220 units@50 per unit $11,000

Add Cost of units purchased during the year

200 units purchased @42 per unit     $8,400

500 units purchased @55 per unit      $27,500                      $35,900

Less: Cost of units in ending inventory                              ($7,250)

Cost of 775 units sold during the year                               $ 39,650

Number of units sold during the year = Units in beginning inventory + Units purchased during the year – Units in ending inventory

=220+200+500-145

=775 units

Most recent Cost; Jan 20:

500 units@55 per unit                                     $27,500

Next most recent cost; Jan 10:

200 units@42 per unit                                     $84,00

Next most recent cost; Jan 1:

75 units @50 per unit                                       $3,750

Cost of 775 units sold during the year         $39,650

Under Average cost and Periodic Inventory system Method

Units Cost Amount
Jan 1 Beg Inventory 220 50 $11,000
Jan 10 Purchases 200 42 $8,400
Jan 20 Purchases 500 55 $27,500
Total Purchases 920 $46,900
Units Sales Price Sales Amount
Jan 12 Sales 350
Jan 18 Sales 425
Total Sales 775

Average cost was calculated as total value of beginning inventory and purchase $46,900/920.

Total units in beginning inventory and purchased to get $50.97

Average Cost =$46,900/920

=$50.97

This average cost can then be applied to the 775 units in sales during January and would be calculated as 775 units x $50.97 which is equal to 39,501.75

Cost of goods sold= 775 units*$50.97

=$39,501.75(approx)

Ending Inventory =145 units @ $50.97

=$7390.65(approx)

Amount would be same in case of average cost method if the figures get rounded off.


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